Introduction and Overview

Accounting researchers as parasites who prey

on the work of others to generate their findings

Research in accounting is concerned with
solving problems, investigating relationships
and building a body of knowledge
Because we rely to such a great extent on prior
research in the natural and social sciences to do
so, this volume will take a similar approach in
leaning on work in other disciplines where it
helps to inform accounting research
Bennett (1991) identifies four basic levels of
research
Description
Classification
Explanation
Prediction

Good research generates the sound evidence
needed to overturn or revise existing theories
Bankruptcy prediction modeling provides an
excellent example.
Altman (1968) and Taffler (1983) have
developed models that have proved very
successful in identifying distressed companies
These models are statistically excellent but the
theory underpinning their content, in terms of
the ratios to be used and the variables they
represent, is extremely weak
Blum (1974), Myers (1977), Scott (1981)
Good research generates the sound evidence
needed to overturn or revise existing theories

Two major processes of reasoning, deductive
(theory to observation) and inductive
(observation to theory), are important for theory
construction and observation testing
Kuhn (1970) suggests that researchers are
concerned with problem-solving within a single
framework of widely accepted beliefs, values,
assumptions and techniques
This shared framework, or view of the world, he
termed a paradigm, so that a paradigm shift
corresponds with some revolution where the
existing framework and theories can no longer
cope with the volume of disconfirming evidence
Example
In accounting research the parallels might be
the paradigm shifts associated with the ideas
introduced by Ball and Brown (1968) and the
difficulty they had in getting a paper published
which questioned the existing paradigm by
showing a link between stock prices and
accounting earnings, through the abnormal
performance index. A similar, though perhaps
less radical, movement is associated with Watts
and Zimmerman (1978) and their popularization
of agency theory in an accounting environment
Theory as testable explanation
Faced with a set of diverse observations, we
can establish a set of tentative explanations
which help to make sense of the diversity
A theory is nothing more than a substitute for
experience put forward by someone who does
not know what they are talking about
The data collection itself allows only a
descriptive approach (e.g., means, standard
deviations, ranges, correlations); we cannot
attempt to attribute causation in any meaningful
way without recourse to an explanatory theory
In accounting, we witness the frequent and
numerous anomalies to which the Efficient
Markets Hypothesis (EMH) is subject, but we
have no other widely accepted theory of the
manner in which stock prices react to the
availability of relevant information
A critical approach to accounting
research
Researchers must demonstrate a healthy
skepticism towards both their own findings and
those of other researchers